Dow Jones Forecast: DJIA falls as treasury yields rise

Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow future -0.65% at 38,606

S&P futures -0.74% at 5205

Nasdaq futures- 0.85% at 18717

In Europe

FTSE -0.66% at 8313

Dax -1.25% at 18463

  • Stocks fall on expectations of sticky inflation & high rates for longer
  • Mega caps point to a weaker start
  • American Airlines flies lower
  • Oil rises for a fourth straight day

Stocks fall on expectations of sticky inflation & high rates for longer

US stocks are heading for a weaker start on Wednesday as rising treasury yields amid concerns over the timing of the Federal Reserve rate cuts weigh on mega caps.

Apple, Meta, and Nvidia are set to fall between 0.2% and 1.1% as the treasury yields notched higher. The rise in yields reflects sticky inflation concerns and higher interest rate expectations after stronger-than-expected U.S. consumer confidence data yesterday and following hawkish commentary from Federal Reserve officials. A higher cost of borrowing for longer can squeeze a company’s profits and household budgets.

The tech-heavy NASDAQ closed above 17,000 for the first time yesterday after gains in Nvidia and other chip stocks. However, the S&P 500 ended flat, while the Dow Jones fell on fears of the Fed keeping interest rates high.

The market had been optimistic that after cooler and expected inflation in April, the Fed may cut rates as soon as September. However, a hawkish chorus from Federal Reserve speakers, including Neel Kashkari, who yesterday warned that policymakers may still hike rates, has seen the market push back rate cut expectations. A 25 basis point rate cut is only priced in for November and December.

The U.S. economic calendar is relatively quiet, with just the Fed’s Beige Book 2 later today, which could throw light on the health of the US economy.

Core PCE data, the Fed's preferred gauge of inflation, will be the key focus this week. The data due on Friday could offer further clues to the Fed's path for rate cuts.

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Corporate news

American Airlines is set to open over 8% lower after it cut its second-quarter earnings forecast on a more subdued outlook for travel demand.

After the close, salesforce will release its earnings, and attention will be focused on the group's data cloud division. This unit stands to benefit from a boom in interest in AI. Q4 annual recurring revenue from this unit was almost $400 million, growing by 90% across the year; however, there could still be headwinds for the business amid uncertainty over the broader economic backdrop and spending squeezed by inflation in small and medium-sized firms.

Dow Jones forecast – technical analysis.

The Dow Jones is correcting lower after reaching an all-time high above 40,000 earlier in the month. The price has taken out several key supports as it heads towards 38,500. Sellers will look to extend the selloff below this level towards  37,750, the May low, and 37,235, the April low. Should buyers defend the 100 SMA at 38,700, a recovery would look to 39,285, the February high, to bring 40,000 back into focus.

dow jones forecast chart

FX markets – USD rises, EUR/USD rises

The USD is rising, tracking treasury yields higher after yesterday's stronger-than-expected consumer confidence and following hawkish comments from Federal Reserve officials warning that sticky inflation could keep interest rates high for longer.

EUR/USD rose after German inflation and consumer confidence data. German consumer confidence rose more than expected to -20.9, up from -24. Meanwhile, German inflation rose 2.4%, up from 2.2%. Although this is unlikely to knock the ECB off track for a rate cut in June, sticky inflation could alter the future path for rates.

GBP/USD is drifting lower amid a quiet UK economic calendar. With no high-impacting data or Bank of England speakers, attention is on the two main political parties in the UK as they prepare for the July 4th election.

Oil extends gains with OPEC+ meeting in sight.

Oil prices are rising for a fourth straight day, reaching a four-week high on expectations that major oil producers will extend output cuts at this weekend's meeting.

OPEC+ will meet on June 2nd in an online meeting, suggesting an agreement may have already been reached. The group is widely expected to extend its voluntary production cuts of 2.2 million barrels per day.

Meanwhile, the onset of the summer season, which lifts vehicle and aviation demand, is also supporting the price. Early data from the US suggests that holiday trips over the Memorial Day holiday and the traditional start of the driving season were relatively high.

Looking ahead, US crude oil inventory data from the API later today is expected to show that stockpiles fell by 1.9 million barrels.

News that the IMF has upwardly revised China's GDP growth to 5% from a previously expected 4% is also supporting the oil price. China is the world's largest importer of oil.  Stronger growth is expected to lift the demand outlook.


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